Page 21 - HBR's 10 Must Reads on Strategic Marketing

RUST, MOORMAN, AND BHALLA

The interaction is captured in the customer information system and
used, in turn, by the customer department to divine new customers’
needs and create solutions.
If customer service must be outsourced, the function should re-
port in to a high-level internal customer manager, and its IT infra-
structure and customer data must be seamlessly integrated with the
company’s customer databases.

A New Focus on Customer Metrics

Once companies make the shift from marketing products to cultivat-
ing customers, they will need new metrics to gauge the strategy’s
effectiveness. First, companies need to focus less on product prof-
itability and more on customer profitability. Retailers have applied this
concept for some time in their use of loss leaders—products that may
be unprofitable but strengthen customer relationships.
Second, companies need to pay less attention to current sales and
more to CLV. A company in decline may have good current sales but
poor prospects. The customer lifetime value metric evaluates the
future profits generated from a customer, properly discounted to
reflect the time value of money. Lifetime value focuses the company
on long-term health—an emphasis that most shareholders and
investors should share. Although too often the markets reward
short-term earnings at the expense of future performance, that un-
fortunate tendency will change as future-oriented customer metrics
become a routine part of financial reporting. An international move-
ment is under way to require companies to report intangible assets
in financial statements. As leading indicators such as customer-
centered metrics increasingly appear on financial statements, stock
prices will begin to reflect them. Even now, savvy analysts are push-
ing firms to understand customer retention rates and the value of
customer and brand assets.
Third, companies need to shift their focus from brand equity (the
value of a brand) to customer equity (the sum of the lifetime values of
their customers). Increasing brand equity is best seen as a means to
an end, one way to build customer equity (see “Customer-Centered

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